Slow US progress a means to an end

By SIMON COLLINS in Seoul

An American economist predicts drastic cuts in US agricultural protection in the current Doha trade round, despite a big increase in subsidies in this year's US farm bill.

Dr Fred Bergsten, director of the Washington-based Institute of International Economics, will tell the World Knowledge Forum in South Korea today that successful trade liberalisation requires one step backwards, two steps forward to win political support.

He says the US push for bilateral free-trade agreements with countries including Australia, and perhaps New Zealand, is also useful to create pressure on individual countries to co-operate.

In speech notes distributed at the forum, Bergsten says the close vote in the US Congress this year, to give President George W Bush fast-track powers to negotiate trade deals, reflected the fact that the American public is split almost evenly over the wisdom of free trade.

Opinion polls showed that a clear majority of US voters would support trade liberalisation only if it was balanced by help for those who lost their jobs as a result.

This was reflected by provisions in the fast-track trade bill to increase worker eligibility for welfare and retraining and to provide partial insurance for loss of wages and health insurance.

In the same way, the huge increase in subsidies in the latest farm bill was balanced by US proposals at Doha to dramatically reduce agricultural tariffs, phase out all export subsidies and sharply cut domestic support levels.

The recent penal duties on steel imports from New Zealand and other countries were also a step towards ultimate liberalisation. The move helped win nine more votes in the Congress caucus for this year's fast-track bill than in the last vote in 1998.

An historical perspective reveals that such domestic manoeuvring is a sad but true constant of US trade policy, Bergsten says.

The entire history of US postwar trade policy is one step backward, two steps forward. On all previous occasions, the gamble has succeeded and the ultimate benefits have turned out to be well worth the costs.

Bergsten sees bilateral deals in the same light.

Taken in combination with the existing prospects for a Free Trade Area of the Americas, and bilateral negotiations both inherited from Clinton (Chile, Singapore) and newly envisaged (Australia and perhaps New Zealand, Central America, Morocco, Southern Africa, possibly Thailand), the Doha round paves the way for a substantial package that could bring sufficient benefits to both the US and other countries to persuade all of them to complete the deals.

Meanwhile, Bergsten told another conference in Seoul that the US economy was likely to keep growing by at least 3 per cent to 3.5 per cent a year despite Wall St wobbles.

He said the recent widespread application of computers and the internet in industry, housing, retailing and other sectors had shifted US productivity growth from an average of 1 per cent a year throughout the 1970s and 1980s to 2.5 per cent a year since the mid-1990s.

That productivity growth had continued right through last year's recession and up to the present.

"If I were an international investor contemplating where to put my money over the next decade or so, I would give a fairly high priority to the United States."